Understanding Congestion Rent in the ERCOT Power Grid

The ERCOT (Electric Reliability Council of Texas) power grid involves many players, including power generators, transmission providers, and retail electricity providers. When demand for electricity in one part of the grid exceeds the available transmission capacity, congestion can occur. This can lead to higher prices for electricity in that area and may even result in power outages if the congestion is not addressed.

To mitigate congestion, ERCOT offers financial incentives for generators and other market participants to adjust their power output or transmission patterns to reduce congestion and increase grid reliability. These financial incentives are known as congestion rent payments.

The congestion rent payment is the difference between the market price of electricity in the congested area and the cost of generating and transmitting the electricity. This payment is made to the generators or other market participants who help to alleviate congestion. The amount of congestion rent can vary due to a combination of factors related to the transmission system, weather patterns, demand for electricity, and the availability of generating resources.?

Over the past four years (2019-2022), the congestion rent in the ERCOT power grid has increased by an average of 32%. This increase is primarily attributed to more load, generation, and outages in the area. For instance, in 2019-2020, the No Trees Area had the highest congestion value, consisting of the 138 kV lines Dollarhide to No Trees Switch and Andrews County South to Amoco Three Bar Tap. The congestion value associated with the No Trees Area in 2020 was $30 million less than the same congestion within the area in 2019. The congestion was resolved through 138 kV line upgrades in the area. However, the load growth from oil and gas development in Permian Basin, in conjunction with variable renewable output and outages required for transmission upgrades, continues to cause other congestion in the far west.

In 2021, the addition of 2.8 GW of wind and 4 GW of solar, followed by planned and unplanned outages in the system, led to an overall increase in real-time congestion by 46%. The constraint with the highest congestion value ($129 million) was the Panhandle GTC constraint, mostly caused by the interaction of high intermittent resources and planned transmission outages, including ETT maintenance outages, in the area. Additionally, constraints on the Pawnee to Calaveras 345 kV Line, Fayette Plant to Winchester 345 kV Line, and Carmichael Bend to Decordova Dam 138 kV Line occurred in February in conjunction with Winter Storm Uri. The STP to Houston 345 KV Lines and Oasis to Dow Chemical 345 kV Lines were due to planned and forced outages in the area. February congestion costs were significantly higher in 2021 than in 2020 as a result of the Uri - winter storm.

In 2022, the West-Export GTC operated at derated capacity, causing significant congestion between West and North. This had one of the highest congestion values of $310 million. However, the summer heatstroke in May and June 2022 resulted in a substantial increase in congestion. The congestion on Jewett to Singleton 345 kV, North Houston Interface, and Spruce to Pawnee 345 kV lines caused the congestion in these months to reach as high as $701.20 million. The significant negative price difference between the LRGV area and the rest of ERCOT was also caused by congestion on the North Edinburg LOBO GTC. This, along with other constraints, restricted power flow from LRGV to the rest of ERCOT during scarcity events.

In 2023, as the integration of oil-rigs and large flexible loads increases in the far west, the congestion between the far west and west is also increasing. There are some planned outages in and near the Midessa county, resulting in overall congestion in the far-west area. Till March 2023, the major constraint impacting the system is Midessa switch transformer, resulting in a congestion value of more than $70 million. Overall, the congestion in first three months is higher compared to 2022 due to the planned outages in the area.?

Although we are currently seeing significant congestion in the Far West due to the integration of large flexible loads and outages in the area, ERCOT does plan to implement a few transmission upgrades that may help alleviate the congestion.

1. Facts are sourced from ERCOT constraints and need report // Potomac State of market reports
2. I should note that the thoughts expressed in the article are mine alone and do not necessarily reflect the views of others.